Centaurus Metals (ASX:CTM) has reported a positive Bankable Feasibility Study for its flagship Jambreiro iron ore project in Brazil that could potentially have a pre-tax internal rate of return in excess of 47%.
The positive BFS represents a milestone in the company's project portfolio and the revenue metrics suggest that the project could remain largely immune to global iron ore price volatility and return significant profits.
But in a day that saw many ASX resource stocks out of favour, the market failed to factor in the large number of positives in the Centaurus BFS.
The study was done in conjunction with Brazilian engineering groups Contecmina, WALM and Micromine Consultoria.
A final investment decision on the project is expected in the first quarter of 2013 while onsite construction is likely to begin in April of next year. Centaurus is already in discussion with potential offtakers for sale of the iron ore into the Brazilian domestic market.
The BFS demonstrates that the 2 million tonne per annum iron ore project is a low-cost, high grade operation that would present Centaurus with a A$140 million post-tax NPV.
Centaurus expects mine gate cash operating costs for the life-of-mine and royalties at $A16.2 per tonne, while also assuming a mine gate domestic iron ore price of $47 per tonne.
The project, which is expected to have an initial mine life of 9 years will return A$847 million in revenue with an EBIDTA of $556 million.
This positive BFS will enable Centaurus to arrange for debt financing of the project for which $4 million have already been set aside for progressing detailed engineering and ordering long-lead capital items.
Centaurus has also conducted debt financing discussions with a number of banks and has received indicative term sheets. A select group of banks are likely to review the BFS and provide credit-approved term sheets.
The project appears to be on firm ground with Centaurus already having obtained approval on the Environmental Impact Assessment and lodging an application for an installation license.
Analysis
The BFS document is a very solid platform for the company to progress to an Investment Decision on Jambreiro in early 2013. The ability of the project to generate strong profit margins (exceptionally low forecast mine gate cash operating costs (C1 + Royalties) of A$16.2/tonne) in most iron ore cycles is rare and quantifiably profitable. Proactive Investors believes the market has overlooked this pertinent point and can see value accretion in the next 6 months for Centaurus Metals.
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